Labor
New Report Shows Exactly Why Average Wages Actually Went Up During The Recession
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The U.S. economy saw average wages jump during the last recession and fall during the recovery, but the counter intuitive pattern is perfectly understandable, according to a new report released Monday.
The Federal Reserve Bank of San Francisco looked at average compensation for those with full-time employment. Workers tend to see their wages increase as the economy improves but the opposite has occurred in the last decade. The reserve bank found in its report, “What’s Up with Wage Growth?” the trend all started when low-skilled workers lost their jobs during the recession.
“As those workers left the labor market, the mix of employees who remained on the payroll generally had higher-than-average skills and wages,” the report argued. “As the labor market has recovered, this pattern has reversed. Compositional changes are now a drag on aggregate wage growth.”
In short, those workers with more adaptable skills and experience usually get paid more. It was these skills that also allowed them to withstand the recession when many others were forced out of work. With just the highest paid employees left, average wages naturally increased. The recovery meant lower-skilled workers have been able to reenter the workforce causing average wages to decline again.
“Sluggish wage growth may be a poor indicator of labor market slack,” the reported also noted. “In fact, correcting for worker composition changes, wages are consistent with a strong labor market that is drawing low-wage workers into full-time employment.”
The sluggish wage growth may also be indicating higher-skilled workers are now finally leaving the workforce. The more experience a worker has the more likely they are to have developed more desirable skills. Those close to retirement have had time to gain experience and skills hence why they tend to have higher wages. When they retire those wages are no longer factored in.
The last recession had a profound impact on the economy which is still being felt today. Its impact on global markets were so bad it has since been call the Great Recession. It was sparked by the subprime mortgage crisis and the financial crisis of 2007. The recovery took years to begin and has since been incredibly slow.
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